Starting a new business is daunting. But when starting a new business in the IT and Telecommunications field, things can get exponentially hairier, but done correctly, having a business in this industry can be extremely rewarding, both personally and financially.
One of the most exciting aspects of the technology industry is the rate of change we see. This allows for the creation of brand new, successful businesses on a daily basis. Although starting any new business is always a challenging undertaking, it also has the potential of being one of the most fulfilling experiences. If you see the potential to create a business, and you can make a compelling argument that the business model has longevity, I would encourage you to go for it.
I would like to share some of the important lessons I learned first-hand with those who are just starting out or thinking about creating their own business. These are by no means the only things you should consider, as there is by far a long list of things an entrepreneur should know before starting a business, and thankfully we have Entrepreneur Magazine for that, but these are some of the things I have learned that you should definitely consider and contemplate more than once.
1. Formalise your business agreements
One of the most important consideration for a new business is to ensure that there is a strict, formal, well-written agreement between you and your business partners.
Do not only plan the way the business is going to work, but also how it will fail, and what each party is liable for if it does. I have always insisted on putting such agreements in place and it has saved my relationships with friends in the past.
2. Cash flow is king
In addition, cash flow management remains a critical task for any business at any stage. Any business, particularly one that has just opened, is at serious risk of failure if cash flow becomes compromised.
Watch your cash flow like a hawk, which means planning and accounting for every little cent you’re going to spend. The margin between making it and failing can sometimes be as small as purchasing something for the business this month, when it could have waited another month.
3. Work towards the best, but plan for the worst
What happens when the business goes bust is a difficult thing to talk about, because when you are starting out, you are hopeful and idealistic, and you do not really want to talk about the downside. But you have to talk about it, and plan for a situation where the business goes under.
4. Beware the financing trap
To return to financial management, I would discourage new business owners from acquiring too much finance and being over-indebted from the first day, unless it is absolutely necessary.
Finance needs to be repaid, placing strain on that all-important cash flow, when often an innovative solution will reduced the reliance or even the necessity of finance.
5. Learn to walk before you try the 100m Olympic sprit
Nine out of ten times, I find that budding entrepreneurs have completely overestimated what they are going to need to spend to get started. New businesses often want to splash out on marketing, without asking whether they have a product to sell and whether people would want to buy it.
If you know that people will buy your product, go out and sell it first. Just get your first order. If someone is willing to pay you for something if you deliver it to them, you have your first order, and all you need is the cash to produce the product or service. This may mean starting smaller than planned, or maybe lower margins from the start, but it reduces the risk profile of the venture drastically.
What I have seen a few times before is someone leaving their job with enough money to pay themselves a salary for a few months, and then spending all that money on setting up a marketing plan, doing a little advertising, and on other operational expenses, without having sold anything yet, and then go bust due to a lack of revenue.
6. You are either all in, or all out
Something that always amazes me is people saying that they would like to get involved in a part-time business. I always draw parallels between having a business and having a baby. It is going to be kicking and screaming and be very fragile in the first few years.
If it is not, you are doing it wrong. If the business makes it past the first few years, it has a better chance of surviving.
Like a baby, the older it gets, the more it is able to look after itself. However, it needs your involvement at the outset. If you can only devote some of your time to the business, you might be absent during a crisis, and that could prove disastrous.
7. Be future first
Finally, it is important to plan well into the future. Basic business plans with a long-term outlook are one of the cornerstones of a successful operation. You should have a vision of where you want the business to be in 50 years, and how you want it to get there.
Chances are that the business will almost definitely not end up where you thought it would as it will evolve over time, but thinking into the future helps you to anticipate eventualities, and plan for how to deal with them.
With the best intention, a business may go bust due to market conditions that are completely out of your control. A fluctuating exchange rate may cripple you slowly, or a revolutionary development within your industry may render your product or service obsolete overnight.
These can impact everyone, so rather focus on what you can control; focus on the things that you can have a direct and tangible impact on the outcome. The 7 point I have listed are those that I found to be the most important in my journey, however your journey may present others that impact on you even more.
Keep a list of the challenges you face and the lessons you learn, and always refer back to them to help you to keep developing.